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The  Japanese economy contracted by  0.4% in Q3 and this  is a very big disappointment: the economy was expected to return to growth of 0.5%. Year over year, this is a 1.6% contraction instead of 2.2% predicted. A second quarter of contraction means an official recession.

USD/JPY jumped to 117 before losing 116 and recapturing it. Does this mean more stimulus, making it a buying opportunity, or does it mean that Abe is on his way out?

Private consumption hardly grew, by 0.4%, which means that the impact of the sales tax hike from 5% to 8% is still felt. In Q2, consumption plunged by 5%. The next tax hike is officially planned for October 2015 but is widely expected to be delayed until 2017.

There may be some kind of a silver lining: inventory adjustments could be responsible for some of this fall into recession:  businesses cut down inventories – depleting of inventories means that they will need to be replenished in the following quarters.

Also fiscal stimulus is on the cards, perhaps in the size of 3 trillion yen.

This strengthens the notion that Prime Minister Shinzo Abe, now under pressure,  is set to call snap elections, asking for a new mandate for his policies, especially a delay in the next tax hike. The sales tax hike in April dealt a blow to the world’s  third largest economy and it couldn’t really recover.

PM Abe is set to make a special announcement on Tuesday.

More:  USD/JPY: Almost To The Universe & Beyond: New Forecasts – Danske

And here is the chart:

USDJPY shakes November 17 2014 shocking Japanese recession dollar yen graph